Good morning, Friday mornings are best when it comes to making grand weekend plans because by the time the day is over, chances are that you've forgotten the plot.
That is the primary reason why we do not send out this newsletter on weekends. 😅
While we will be back on Monday morning, today's happy as well as concerning blurbs require no waiting time, so please…
A Secular Shift
Real estate investments can be exciting, while also being a great way to diversify your portfolio but for a very long time, real estate has also been scary, as in with all the chaos in the market - who knows what lurks behind those doors?
Thankfully, that opaque dark mist has slowly started to lift and on cue, individual and institutional investors are interested in the sector again.
The Big Shift
Before demonetisation, real estate was probably at the peak of its decadence with random launches, fly by night operators, big brand failures, missed deliveries, folks going in and out of jail, basically - you name it.
And if you analyse the prices of any real estate firm in late 2016, early 2017, they were trading at a fraction of very quick liquidation value.
Then RERA and GST made their appearances, resulting in most unorganised developers being shut out of the sector, making way for the organised, reputed players.
Per this CNBC TV18 story, 'that is not so much cyclical but it is more of a secular shift.'
Going Hybrid
A major new global trend due to COVID is the hybrid work environment, which is here to stay – a concoction of working from home and the office, and when productivity did not go down despite employees working from home, it led to a boost in property sales across metros, state capitals as well as tier 2/3 cities.
As A Result?
A major chunk of ready to move in inventory has been absorbed and in the next year or two, property prices will begin moving upwards.
Fuelling Inflation
Despite a resurgence in housing demand and improving sales across the country, the real estate builder becomes a very worried individual every time input cost is mentioned.
Care To Explain?
Let's say a vendor at the bazaar sells onion kachoris for INR 10 and after deducting all costs, he is left with a profit of INR 2 apiece.
Throw in the great Indian rope trick and onions are suddenly 100 bucks a kilo. Our man is selling kachoris at INR 10, while his new cost, thanks to the onion is now INR 11. So each kachori he sells is costing him a buck from his pocket.
Now add high demand, like an office party order, where the admin bloke is asking him to price the kachori at INR 9, because he is buying 50. Get it? It's painful.
Is There A Solution?
In fact, there are two. One, the vendor could increase the price of his kachori by 2 bucks to maintain his level of profit. However, in the bazaar, that's a dangerous move with all that competition.
Two, he could reduce the amount of onions going into the recipe to keep his cost at INR 8.
Real estate builders too are facing a similar dilemma, with construction cost going up rapidly but option one - reducing cement and steel in the building - doesn't exist.
Result? Home prices are going to go up. 🔼
Show Me The Numbers
Industry voices say that average construction cost, which earlier ranged from INR 1,300 to 1,500 per sq. ft. now stands at between INR 1,800 to 2,200 per sq. ft., a rise of almost 40%.
This increase of INR 500 per sq. ft. is bound to affect the final price of the property.
Runaway core construction material costs - steel is up by almost 50% and cement by 34% - is leaving builders staring at losses and as a fallout, home prices in many areas, like Nagpur, have gone up by 9%-10% already, silently.
Fuel price, leading to record transportation cost is the major reason for this inflation, so not just core items but everything - like wires, fittings, and the kitchen sink - are all dearer.
A respite from this cost heat eludes experts as of now.
Half A Cup Extra
- 📉 Relentless selling by FIIs is a key reason for yesterday's correction in the stock market, say analysts.
- With a deadline to pay today, China's Evergrande situation is hitting other builders with downgrades too.
- 🎭 Facebook Inc said it would rebrand as Meta, a name change that underscores its ambitions to refocus the world's largest social network on building the "metaverse."
Up In Smoke
Cigarette sales are expected to rise 7-9% this fiscal to 83-85 billion sticks compared to last year.
In FY21, cigarette sales declined 13-15% when compared to the pre-pandemic number of around 90 billion sticks.
While ITC and their clan are huddled together trying to explore newer ways of increasing sales, analysts feel there is no need to worry because as more employees return to the office, so will this vice.
If you've quit/reduced your smoking habit while working from home, stick to your resolve and prove the analysts wrong. 💪
Proptech And Broker 2.0
When boat loads of money is deployed into technology, the larger picture must transform in order to justify the spend. Property technology (proptech) is no exception.
Big Vision
Today, more than ever before, proptech innovations are being applied in every nook and cranny of the real estate business and the general word on the street is that if you don’t adopt, you’ll be lagging, and thus big investments are needed to maintain market share.
With that as a backdrop, two key areas where global real estate firms are investing over the next five years are - one, the digitization of the entire life cycle of property, and two, sustainability, a very data-heavy investment requiring extensive emissions monitoring.
While VCs and proptech startups seek to innovate and transform how the sector operates, change is also coming from within, in the form of big brokerages and real estate service firms investing in their own technology.
Big Transformation
Changing real estate operation systems and data analytics is also changing the way people function within the real estate sector, especially brokers/channel partners.
Today, they are being finally challenged to move beyond traditional methods and institute more sweeping upskilling through the use of technology.
In short, proptech is changing the way brokers operate.
Their erstwhile analog position is being swapped with a different kind of broker - one who has more extensive technological knowledge, who forms deeper relationships with clients that go beyond transactions, and who becomes a trusted advisor.
This piece even goes on to call this new tech savvy individual - Broker 2.0.
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Our unsolicited weekend advice to anyone who asks is - ‘when in doubt, sleep.’
Have a great weekend. See you Monday. 💙
☕ The Crew@Ginger Chai